Summary

This circular contains details of the Fraud Act 2006, which will be brought into force on 15 January 2007. The Act repeals and replaces the eight deception offences in the Theft Acts 1968 -1996. It introduces a general offence of fraud, and other fraud offences which can be used in particular circumstances. The text of the Act_ can be found the Office of Public Sector Information website as well as the explanatory notes on the Act .

The purpose of this circular is to provide guidance and should not be regarded as providing legal advice. Legal advice should be sought if there is any doubt as to the application or interpretation of the legislation.

(A separate circular will be issued to prosecutors by the CPS).

Action

Recipients of this Circular are asked:

To note the changes in the law of fraud

To implement and communicate promptly the changes in the law to relevant staff.

Background to the legislation

The Act is based mainly on the Law Commission report on fraud (Cm 5560), which concluded that the Theft Act deception offences were too specific, overlapping and outdated. The purpose of the Act is to clarify the law, and provide law enforcers and prosecutors with a modern and flexible law of fraud.

Dishonestly inducing a creditor to wait for payment or to forgo payment with the intention of permanently defaulting on all or part of an existing liability

(Theft Act 1978, section 2 (1) (b))

Obtaining an exemption from or abatement of liability to make a payment

(Theft Act 1978, section 2 (1) (c))

The general offence of fraud

Section 1 of the Act establishes a new general offence of fraud, which can be committed in three ways: fraud by false representation; fraud by failing to disclose information; and fraud by abuse of position. These are set out in sections 2, 3 and 4 respectively.

There are two basic requirements which must be met before any of the three limbs of the new offence can be charged. First, the behaviour of the defendant must be dishonest.[2] Second it must also be his intention to make a gain, or cause a loss to another.[3] However, there will no longer be any need to prove that a gain or loss has been made, or that any victim was deceived by the defendant’s behaviour. Each of the three limbs of the offence carries a maximum sentence of 10 years.

Section 2 makes it an offence to commit fraud by false representation in any form. For a representation to be false, the representation being made must be wrong or misleading, and the person making it must know that it is, or might be, wrong or misleading.

For example, a section 2 offence would be committed by a “phisher”, i.e. a person who sends emails to large groups of people falsely representing that the email has been sent by a legitimate financial institution. The email prompts the reader to provide information such as credit card and bank account numbers so that the “phisher” can gain access to their assets.

10. It makes no difference if the representation is made to a machine or to a person. For example, a false representation involving the inputting of a number into a CHIP and PIN machine would also be covered by the offence.

11. Section 3 makes it an offence for a person to fail to disclose information to another person where there is a legal duty to disclose the information.

It would be a section 3 offence for example if a doctor failed to disclose to a hospital that certain patients referred by him for treatment are private patients, thereby avoiding a charge for the services provided.

13. Section 4 makes it an offence to commit fraud by abuse of one’s position; meaning taking advantage of a position where one is expected to safeguard another’s financial interests. The offence can be committed by omission or by a positive action, so that a failure to act in the interests of another could be caught by section 4, (provided, as in each of the sections 2-4, that the behaviour was dishonest and aimed at making a gain or causing a loss).

14. Section 4 would cover, for example, a case where an employee of a software company uses his position to clone software products with the intention of selling the products to make a profit for himself, or a case where an employee copies his employer’s client database for the purpose for setting up a rival company. It would also cover a case where a person is employed to care for an elderly or disabled person has access to that person’s bank account and abuses his position by transferring funds to invest in a high-risk business venture of his own.

Offences relating to articles for use in frauds

15. Section 6 makes it an offence to possess articles for use in frauds. So far as fraud is concerned, it replaces section 25 of the Theft Act 1968, which makes it an offence for a person to have with him, when not at his place of abode, any article for use in the course of any burglary, theft or cheat.[4] The types of articles that could be caught by the offence include lists of other peoples’ credit card details, or software used for producing blank utility bills.

16. ’For use’’ is a key phrase in both provisions and it requires a general, not a specific, intent to commit fraud to be proved. The crucial difference between the offences is that section 6 also applies to articles found in the offender’s home. The offence carries a maximum sentence of 5 years.

17. Section 7 makes it an offence to make or supply articles for use in frauds, and carries a sentence of 10 years. It is designed to catch, for example, those who supply personal financial details for use in frauds to be carried out by other people. It is also designed to catch those who manufacture devices, such as software programmes for generating credit card numbers, which are to be used in frauds by other people.

Fraudulent trading

Section 9 mirrors the fraudulent trading offence in section 458 of the Companies Act 1985 which covers UK companies. Section 9 is a new offence which applies to businesses not caught by the Companies Act offence - meaning sole traders, partnerships, trusts, companies registered overseas, etc. Section 9 is an “activity” offence, meaning that it captures a course of conduct, and is not limited to specific transactions. The offence (and section 458) will carry a maximum sentence of 10 years.

An example of fraudulent trading would be a pattern of behaviour by a dishonest roof repairer who consistently inflated bills and charged for work he had not done.

Obtaining services dishonestly

Section 11 makes it an offence to obtain services dishonestly, thus creating a new “theft-like” offence to cover services, which addresses the current loophole which exists because services cannot be stolen under the Theft Acts and because the current offence of obtaining of services ‘by deception’ cannot be charged when services are obtained from machines.

21. The offence covers, for example, the situation where a person attaches a decoder to a television to enable viewing access to cable / satellite television channels for which a charge is made but which he has no intention of paying.

Jurisdiction

22. Part 1 of the Criminal Justice Act 1993 confers jurisdiction over certain specific crimes of dishonesty if a ‘relevant event’ occurred in England and Wales. A relevant event is defined as “any act or omission or other event (including any result of one or more acts or omissions), proof of which is required for conviction of the offence.” Paragraph 24 of Schedule 1 of the Fraud Act makes amendments to the definitions of offences for the purposes of the jurisdictional provisions of the 1993 Act, deleting the references to the offences it repeals and adding references to the new offences.

23. These changes ensure that the wide jurisdictional provisions of the 1993 Act apply to the new fraud offences. So that, for example, in a phishing case, where a false representation is made in the UK, it does not matter if the offender is operating from abroad, he will be caught by the offence in clause 2.

In addition, paragraph 25 of Schedule 1 amends section 2 of the 1993 Act to ensure that the offence of fraud in section 1 of the Act can be prosecuted if the only event that takes place in this jurisdiction is the gain or loss of property. This provision covers the case where a fraud committed entirely overseas leads to the removal of funds from a bank in the UK.

Extent and timing

25. The Act extends to England, Wales and Northern Ireland. It does not extend to Scotland except for section 10(1) which amends the penalty in section 458 of the Companies Act 1985.

26. The Act applies to offences committed wholly after the date of its implementation on 15 January 2007. The existing law remains applicable to any offence committed wholly or partly before that date.

Review

27. The Home Office will review the practical operation of the new offences after 3 years operation. That review will consider the case for abolishing the common law offence of conspiracy to defraud, which was recommended by the Law Commission. In the light of the views expressed in consultations, the Government decided to retain conspiracy to defraud for the meantime, but accepted the case for considering repeal in the longer term. The Attorney General is issuing separate guidance to prosecutors on the use of the common law crime in the light of the Fraud Act.

Training

The City of London Police, acting on behalf of ACPO’s National Fraud Working Group, and with help from the Finance Leasing Association, have produced a training package on the Act, including a CD ROM that will be circulated to all police forces.

Enquiries

30. If you or your staff require any other information in relation to this Circular, please contact Tom Barnes on 020 7035 6994 or by email Thomas.Barnes@homeoffice.gsi.gov.uk.

Deborah Mary Grice

Criminal Law Policy Unit

Home Office

[1] Section 15 of the Theft Act 1968 (obtaining property by deception) was a “trigger offence” under Schedule 6 to the Criminal Justice and Court Services Act 2000. Its omission from Schedule 6 by consequential amendments made by the Fraud Act following the repeal of this offence, and the addition to the schedule of offences created by the Fraud Act will have implications for drug testing under the provisions in section 63B of the Police and Criminal Evidence Act 1984 (drug testing of persons in police detention) where this is in operation as part of the Drug Interventions Programme. It will also have implications for drug testing following release on licence. Further information and guidance will be sent to practitioners in this respect.

[2] The current definition of dishonesty was established in R v Ghosh [1982] Q.B.1053. That judgment sets a two-stage test. The first question is whether a defendant’s behaviour would be regarded as dishonest by the ordinary standards of reasonable and honest people. If answered positively, the second question is whether the defendant was aware that his conduct was dishonest and would be regarded as dishonest by reasonable and honest people

[3] Section 5 defines “gain” and “loss” in the same way as in section 34(2)(a) of the Theft Act 1968

[4] Schedule 1 to the Act amends section 25 of the 1968 Act to delete the references to “cheat”. However, section 25 will remain the applicable offence of going equipped for burglary or theft.